Invoice processing theft costs the UK economy alone £127 billion annually. With the rise of ‘crime-as-a-service’ web, where an invoice scam can be crafted in less than 24 hours with the cyber-criminals accepting a portion of the gains as their fee. Hyperledger Fabric eliminates the threat of such scams by leveraging blockchain technology, triggering transparent and trusted automatic actions for approved invoices.
Businesses have often used paper-based invoice processing systems over the years. Even after the invention of Enterprise Resource Planning (ERP) systems, like SAP, many companies rely on their established processes. Unluckily, these can create significant issues, which have become more evident with the invention of cutting-edge technology, like blockchain. In this article, we will discuss the major problems with manual invoice processing between partners or branches in an organization, and how blockchain technology solves them.
But before we dive into that, let us get a general understanding of what is invoice processing.
A Hyperledger Fabric Use Case: Invoice Processing
Table of contents:
What is Invoice Processing?
Invoice processing refers to handling a supplier invoice, right from its receipt to when it has been posted manually or through the ERP system, and is ready for payment.
When processing invoices, data is manually entered or scanned in the recipient’s ERP system. The invoice figures are then coded to the appropriate account, project, and cost center and circulated to the liable purchaser or budget owner for review and approval. With the application of blockchain technology, the entire invoice processing procedure is automated for quicker and more effective invoice processing.
The Invoice Processing Procedure
Step 1: You receive an invoice from a supplier
Once a supplier completes offering the agreed services or products, they will invoice you for payment. Invoices are mostly sent through a mail (paper format) or email (PDF format).
You need to enter the invoice information into your accounting system manually. Unfortunately, the manual entry process is slow, costly, and is often flawed with ‘fat finger’ mistakes.
Step 2: A Copy of the invoice is placed or scanned into the filing system
When entering data into the accounting system, it is advisable to make a copy or scan of the invoice into a book or electronic filing system as a backup. This is essential, especially when inconsistencies arise later.
For manual copies, this implies using rows and rows of filing cabinets and keeping them organized for easy retrieval. In the case of an electronic invoice filing system, you still need to keep it in an orderly way and be cautious with scanning and filing your invoices appropriately.
These steps call for maximum concentration and energy, but they are better than searching for a misplaced invoice or its copy when auditors need it.
Step 3: Invoice is sent for approval
Once you have entered the invoice details and made a copy of it, the next step is getting the invoice approved. For Small and Medium-Sized Enterprises (SMEs), there are less than three individuals authorized to approve invoices. Many SMEs conduct approvals by having the bookkeeper carry the invoice from one office to another and leave it for the relevant authorities to sign it.
The process is risky since most invoices left in approvers’ in-boxes are often forgotten or stolen, causing late payment fines. Still, this method is vulnerable to fraud because it is easy for a bad actor to counterfeit an approver’s signature. Even emails get ignored or accidentally deleted.
For more prominent companies, there is usually a more complicated set of rules to determine invoice approvers. Mostly, more than three people have to approve the same invoice. In this case, a more robust process of invoice approval is needed. Relying on a manual method is a catalyst for disaster.
Step 4: Once approved, the invoice is paid
When the accountable individuals have signed the invoice, it needs to be paid. This step may also require taking the invoice to the right person/department for payment.
Problems with Manual Invoice Processing between Partners
Lack of Process Transparency
Often, the status of manual invoice processing is opaque: Has the invoice been received? Has it undergone the proper scrutiny? Is it genuine? When will it be posted and paid? The status of the entire process and the duration it will take to mature often lacks transparency- not only for the vendor but also for the company.
Consequently, more and more inquiries arise, particularly in the case of the extended processing period. Responding appropriately to these inquiries further drains the billing department and delays the process.
Manual invoicing and stacks paperwork eventually cause data siloes. These siloes mucky transparency in a company, making it more challenging to fully audit business spending. Recovering manual copies and details can also be a time-consuming activity. No matter how effective a manual invoicing system is, there is a need for a person to go in and retrieve the information requested. With time, the system breaks down because of its intrinsic limitations.
Hidden expenses of manual processes can add up, and since they are hard to establish, their harmful impacts may be underrated in the current processing systems. These costs often linger in manual invoice processing, where one invoice is handled several times, even before an approval decision is made. Besides contributing to high labor costs, it increases the potential of missing favorable payment terms due to extended processing periods.
Manual invoice creation, manual routing, manual data entry, manual exception management, manual approvals, and even the cost of manually indexing and filing an invoice contribute to this outrageously high costs. The more times a single invoice is handled, the higher the chances of it being misplaced or stolen, increasing the hidden expenses further due to late payment penalties.
High Error Rates
Manual invoicing is vulnerable to numerous errors with accuracy plainly in the hands of the invoice processing handlers. This can give rise to costly problems, such as delayed approvals, loss of early payment discounts, and comprehensive searches to detect and rectify errors.
The process of converting data from a physical document into electronic form in a computer is known as data capture or forms processing. It relies on various technologies, such as optical character recognition (OCR). By leveraging the power of different recognition engines, electronic data can be captured in a shorter time than manual data entry.
Unnecessarily Complex Processing
As a company grows, its processes should evolve with it. During the early stages, a business might handle invoices as they arrive in ways that differ from company to company. However, there comes a time when a company needs consistency in processing invoices. Collecting, verifying, approving, and processing must be solid to streamline the process; otherwise, efficiency will drastically decline.
Decision making is a critical process in all sectors. Every company experiences unique challenges related to the decision making process, especially in approving invoices.
A High Level of Review Efforts Because of Faulty Attribution of Invoices
A digital invoice alone is not the solution to faults attributed to invoices since invoices are often not clearly accredited to their equivalent orders. Vendors and purchasing companies may have an “invoice universe” of their own, applying inconsistent terminology, unique invoices, and article numbers. Some vendors combine multiple orders in one invoice or only issue a partial invoice for big orders.
Fluctuations in prices and quantity may occur during the ordering process, and be left out of the vendor’s or the purchaser’s invoice system. This may result in certain goods being supplied at a different price than initially agreed. This causes complaints, further negotiations, or even cancellation of the order.
Hyperledger Fabric’s Blockchain Solution to these Problems
Hyperledger Fabric is an enterprise blockchain that offers real value in a business network comprising parties that naturally do not trust each other. An enterprise blockchain presents mechanisms, such as a trustworthy source of truth, permission control, and automated execution of business logic. Such platforms are suitable for certain types of use cases where all members can equally benefit.
Tamper-proof, immutable, and transparent records running on decentralized digital ledgers are fundamentally changing how businesses and people interact. Hyperledger Fabric has the most comprehensive set of blockchain services that securely simplify business processes and manage transactions in trusted networks with vendors, customers, and other business partners.
Blockchain technology can streamline invoice processing, save costs, minimize settlement times, and improve the business’ agility. Still, technology can disrupt or create new business models.
In an environment where businesses, governments, and individuals experience errors and fraud attempts concerning invoice processing, guaranteeing trust becomes obligatory. For this purpose, Hyperledger Fabric offers an invoicing solution that brings trust to every step of the invoicing process.
The solution leverages blockchain technology to gather and process data in a faster and effective manner. Hyperledger Fabric’s invoice solution ensures that invoices are from legitimate suppliers and for expected and genuine orders. It also inhibits fake and erroneous typing and double spending of invoices. With Hyperledger Fabric, businesses can confirm and authorize every step of the invoicing process, match invoice data with purchase order data, from the reception of an invoice to the authorization of payment.
We live in a more connected world, more globally integrated and faster-paced like never before. Cutting-edge technologies have presented benefits that sound obvious and ubiquitous. Nevertheless, the world is increasingly becoming chaotic. Trust has become a significant issue, and rebuilding it is a crucial pillar to a better today, tomorrow, and forever.
As a service-based company established in providing robust digital solutions, Hyperledger Fabric strives to co-create trusted businesses and contribute to achieving a sustainable business environment. Your business deserves a streamlined invoice processing that automates all the stages with the use of smart contracts. With less human mistakes, faster transaction times, and more transparency, you can cut expenses.
But the use of blockchain technology in invoice processing extends beyond costs. You will remain reliable while creating strong relationships with suppliers, securing your supply chain, and opening your business to increased savings.
We are helping various businesses with powerful enterprise blockchain solutions based on Hyperledger Fabric. Click here to contact us and one of our experts will get in touch with you.